Yes, It Is Hard Work

An article by Laura Rowley reports on a new paper written by Annamaria Lusardi of the George Washington School of Business. Lusardi states, “We shouldn’t underestimate how difficult it is for some people to make financial decisions.”

10% of the people she surveyed didn’t know the interest rate on their mortage.

20% of the people she surveyed didn’t know the interest rate on their car loans.

Of the 46% who carry a balance on their credit cards 12% didn’t know the interest rate on their highest rate card.

She found just 10% could ace a quiz on basic economics and finance. I saw a sample of the types of questions she was asking. They were almost moronically simple.

Even if you are half conscious you are still in trouble. Our financial system is designed to separate a fool from their money. Even after the recent credit card reform act, contracts are designed to confuse the card holder. The stuff American Express sends my 85 year old mother in law would confuse the proverbial Philadelphia lawyer. That is why I recommend, “Pay off your card every month or lock it away in a box.”

Phone companies and cable television providers desperately want you to set up automatic debits to pay your monthly bill. If you don’t pay attention, like most people, they will pull the old boil a frog trick by slowly raising your bill, hoping you don’t notice the increase and hop out of their pot.

T. Harv Eker, author of Secrets of the Millionaire Mind observes, “Rich people buy assets, things that will likely go up in value. Poor people buy expenses, things that will definitely go down in value.” Are you buying shares in Verizon or are you signing cell phone contracts that you do not understand? Just asking.

More from Annamaria Lusardi:

Americans fail to plan ahead: only 42% have even attempted to understand what they will need to save for retirement. Only 41% with financially dependent children have set aside money for college. She further observes those who do save don’t know what is being done with their money. 20% of those with investment portfolios had no idea what they had purchased. Only 33% were using a tax advantaged account to save for their children’s education. This is really sad.

From T. Harv Eker, “Again the idea is to have your money work as hard for you as you do for it, and that means you have to save and invest rather than make it your mission in life to spend it all. It’s almost funny: rich people have a lot of money and spend a little, while poor people have a little money and spend a lot.”

Rick Mayhew teaches a financial planning course for adults at Washington University in St. Louis. He observes, “Most of my students even though they have been to college didn’t get a lot of basic information along the way that we cover in my class.”

"It is amazing how many people want to talk about investments rather than budgeting," Mayhew notes. "It's not the fun or sexy part of planning. People think they are going to hit a wonderful investment that's going to help them live a great life, when they will do better by managing their controllables: making sure they get the best value on purchases and keep a little money in reserve."

Are you supervising your money? Do you know where it is going and when it is leaving? Do you know where it is coming from? Are you satisfied with the results? Maybe your money does not require as much supervision as your children, but it certainly requires more supervision than a housecat.

A final observation from T. Harv Eker, “Long-term versus short term: poor people work to earn money today; rich people work to earn money to pay for their investments, which pay for their future.”

You can’t control the future but you can plan for the future. The best we can do is to consistently engage in financially prudent activity and then trust God for the rest.

Now let’s be careful out there.